Mr Redwood’s contribution to the Statement on Cyprus, 18 March

Mr John Redwood (Wokingham) (Con): Given the importance of the euro’s stability to the London banking system and the wider world, will the British Government be lobbying the European Central Bank to ensure that it provides sufficient liquidity at all times should a run develop in a weaker bank or a weaker country, given the invitation to people to withdraw their deposits from any difficult institution?

The Financial Secretary to the Treasury (Greg Clark): The pace of negotiations, thanks to the fact that today is a bank holiday in Cyprus and that that could potentially be extended, is meant to resolve the matter before a run on the banks is possible. My right hon. Friend is right that the situation is unsatisfactory and it is necessary to establish a more orderly system for anticipating or managing potential bank failures in the future. It is in everyone’s interest to ensure that there is no such collapse of the banking system in Cyprus.

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  1. Antisthenes
    Posted March 20, 2013 at 3:44 pm | Permalink

    Seeing as European banks are leveraged at 26:1 and on it’s collapse Lehman’s was leveraged at 30:1 not a significant difference. Coupled with which just a 4% fall in value of the assets held by the banks makes them insolvent the possibility of another banking crises is just waiting to happen. Add in that asset values are currently being held artificially higher than they should be by central banks and accounting practices it is only a matter of time before another collapse occurs.

  2. Lindsay McDougall
    Posted March 23, 2013 at 5:15 pm | Permalink

    Having the ECB provide funds without conditions to weak banks and weak countries is a recipe for a weak Euro. Therefore, Germany won’t allow it to do so. Better that weak banks go to the wall and weak countries leave the Euro zone. If a bank holds out its begging bowl, the response should ensure that the pecking order for suffering is shareholders first, depositors second, taxpayers last if at all. The government concerned should:
    – send in an administrator
    – do due diligence to determine the value of assets, including toxic ones
    – publish what it thinks the shares are worth
    – invite offers for the bank or shut it down

    Problems have arisen because governments have reversed the pecking order. Taxpayers have been made the first to be hit. As Cyprus shows, depositors have been asked to take a hit before due diligence has been done and bank shareholders have been asked to take their hit.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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